Pensions & the Standard Deduction

Standard Deduction is the standard amount which is deducted from your gross income so as to estimate the taxable income. This amount depends on your tax filing status. Pension provides people with an income when they have retired and/or is no longer earning a regular income. There is the employment based pension- wherein the employer and the employee contribute during the period of regular employment which is then passed on to the employee during the retirement phase. States also sometimes provide pensions, like the “social Security” .There is also the Disability Pension.

The Standard Deduction

• -Case 1 – If you are single
  The standard deduction is $ 5700. But, if above 65 years and/or blind, then you are eligible for an additional standard deduction of $1400.

  -Case 2- if you are married and filing the tax return jointly or you are a qualifying widow (er) with dependent child
  The standard deduction is $11,400. But, if 65 or over and/or blind, then you get an additional standard deduction of $1,100.

  -Case 3- If you are married, but filing a separate tax return

  The standard deduction is $5,700.But, if you are 65 or over and/or blind, you are eligible for an additional $1,100.

  -Case 4 - If you are the head of the household
  The standard deduction is $8,350. But, if you are 65 or over and/or blind, you are eligible for an additional amount of $1400.

  -Case 5 – If you are a Dependent
  The standard deduction is to be no more than the greater of $900 or $300 plus the individual’s earned income.

Pension and Tax Payments

• If you are eligible for pension payments, the amounts received are either fully or partially taxable. In your retirement plan, if your employer contributed all the cost of the pension, then, the pension payments are fully taxable on your tax return. If you had contributed the after-tax to your pension, then, the pension payments are only partially taxable. Hence, to determine the tax- free part on your tax return, it is important you identify how much you had put into your retirement plan after tax over the years.

  Pensions are taxed differently across states. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming are the states which do not tax pension amounts at all. When you are a retiree, you should not just worry about the taxes on your pension, but, should also consider the other taxes like the property tax and the sales tax. One has to check if the total itemized deductions are more than the standard deductions. If so, it is better to itemize. For taxpayers who have a property of their own, it might be better to itemize deductions because then, they would then be able to deduct the interest and the real estate taxes. The other itemized deductions which should be considered are the medical expenses, state and local income tax, and casualty losses.